The new EU regulation on market abuse (this term collectively covering practices such as insider dealing and market manipulation) has been necessary to address gaps functioning in the preexisting European legal framework and relating to new markets, platforms and over-the-counter (OTC) trading in financial instruments.

The tailored definition of inside information in relation to emission allowances or auctioned products based thereon can be found in Article 7(1)(c) of MAR.

Pursuant to the said provision inside information in relation to emission allowances or auctioned products based thereon comprises "information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more such instruments, and which, if it were made public, would be likely to have a significant effect on the prices of such instruments or on the prices of related derivative financial instruments.”

Among instruments introduced by the new framework is the revamped obligation to make public inside information, with limited possibilities to delay.

The above measures are also, in principle, applicable to emission allowance market participants (emissions allowances are classified by MiFID II as financial instruments), however, the key element when considering whether the MAD/MAR issues are relevant for a given participant in the emission allowance market, is the minimum threshold.

Article 17(2) of the MAR

An emission allowance market participant shall publicly, effectively and in a timely manner disclose inside information concerning emission allowances which it holds in respect of its business, including aviation activities as specified in Annex I to Directive 2003/87/EC or installations within the meaning of Article 3(e) of that Directive which the participant concerned, or its parent undertaking or related undertaking, owns or controls or for the operational matters of which the participant, or its parent undertaking or related undertaking, is responsible, in whole or in part. With regard to installations, such disclosure shall include information relevant to the capacity and utilisation of instal­lations, including planned or unplanned unavailability of such installations.

The first subparagraph shall not apply to a participant in the emission allowance market where the installations or aviation activities that it owns, controls or is responsible for, in the preceding year have had emissions not exceeding a minimum threshold of carbon dioxide equivalent and, where they carry out combustion activities, have had a rated thermal input not exceeding a minimum threshold.

The Commission shall be empowered to adopt delegated acts in accordance with Article 35 establishing a minimum threshold of carbon dioxide equivalent and a minimum threshold of rated thermal input for the purposes of the application of the exemption provided for in the second subparagraph of this paragraph.

The essence of the MAR in that regard is:

- Article 17(2) of MAR requires an emission allowance market participant (EAMP) to publicly, effectively and in a timely manner disclose inside information concerning emission allowances which it holds in respect of its business, including aviation activities and installations, which the participant concerned, or its parent undertaking or related undertaking, owns or controls or for the operational matters of which the participant, or its parent undertaking or related undertaking, is responsible, in whole or in part.

- With regard to installations, such disclosure should include information relevant to the capacity and utilisation of installations, including planned or unplanned unavailability of such installations.

- Recital 51 of MAR states that the information to be disclosed should concern the physical operations of the disclosing party and not own plans or strategies for trading emission allowances, auctioned products based thereon, or derivative financial instruments relating thereto.

The meaning of ‘parent’ and ‘related undertaking’ in Article 17(2) of MAR has been explained on 29 March 2019 in the ESMA’s document “Questions and Answers on the Market Abuse Regulation (MAR), ESMA70-145-111”. In general, it refers to Article 30(2) of MAR and Article 2 points (9) and (10) of Directive 2013/34/EU - see below.

Obligation for public disclosure of inside information on the carbon market - significance tresholds

It needs to be underlined, the fundamental requirement of the MAR i.e. the obligation for public disclosure of inside information applies only to emission allowance market participants being above the threshold specified in the MAR subordinate legislation.

The essence of the said thresholds lies - when it comes to emissions - in their absolute character, meaning any market participant below the threshold will not have to disclose under MAR anything whatsoever.

Equally, the information about physical activities of emitters below the threshold will not qualify as inside information in the MAR meaning (note, however, this does not influence on REMIT obligations to publish inside information, which is a self-standing legal framework).

Article 5 of the Commission Delegated Regulation 2016/522 of 17 December 2015

Minimum thresholds of carbon dioxide and rated thermal input

1. For the purposes of the second subparagraph of Article 17(2) of Regulation (EU) No 596/2014:

(a) the minimum threshold of carbon dioxide (CO2) equivalent shall be 6 million tonnes a year;

(b) the minimum threshold of rated thermal input shall be 2 430 MW.

2. Thresholds set out in paragraph 1 shall apply at group level and relate to all business, including aviation activities or installations, which the participant in the emission allowance market concerned, or its parent undertaking or related undertaking owns or controls or for the operational matters of which the participant concerned, or its parent undertaking or related undertaking is responsible, in whole or in part.

It means the impact of the new regulatory measure would be rather limited - the MAR will likely cover approximately 70 companies (56% being energy producer and the rest other industrial emitters) while the bulk of 857 companies would be exempted (however, the 70 companies at issue account for 70% of the total verified emissions).

It needs to be reserved, the said ESMA's Consultation Paper of 15 July 2014 and the aforementioned Economic Analysis for Impact Assessment on Threshold for Disclosure of Non-public Information on Emission Allowances of 22 May 2014 (s. 24) referred to the threshold 1,050 MW when it comes to the rated thermal input, but the increase of this value to 2,430 MW in the Final Report of 3 February 2015 represents the corresponding technical adjustment aligning it with the second threshold of 6 million tonnes of carbon dioxide equivalent (which remained unchanged), since the former calculation of the equivalent rated thermal input occurred inaccurate.

This is explained in the ESMA's aforementioned Final Report (p. 85):

"More appropriate emission metrics for the calculation of the rated thermal input are the emission factors from the ETS Monitoring and Reporting Regulation. While this affects the results, it does not change the methodology used by the consultants. Using average of these emission factors (between 94.6 and 101 tCO2/TJ, or between 0.3 and 0.36 when converted into kgCO2/kWh) for coal-fired stations, the rated thermal input figure equivalent to the 6-million tCO2eq threshold is around 2,430 MW. The advice has been modified accordingly."

Time span for the calculation of CO2 equivalent emissions and the rated thermal input

Questions and Answers On the Market Abuse Regulation (MAR), ESMA70-145-111

Time span for the calculation of CO2 equivalent emissions and the rated thermal input

Updated: 14 December 2017

Q11.1 What period should be used to calculate whether one of the thresholds set out in Article 17(2) of MAR has been exceeded? As of when is this threshold deemed to be crossed?

A11.1 A participant in the emission allowance market should use a calendar year period (one-year period that begins on January 1 and ends on December 31) for the annual calculation of the carbon dioxide equivalent emissions and the rated thermal input (RTI) of 31 December of the same year.

The calculated emissions over a given year (Y) or the RTI as of 31 December of a given year (Y) should be assessed against the minimum thresholds of 6 million tonnes a year of equivalent carbon dioxide or the minimum RTI threshold of 2 430 MW specified in Article 5(1)(a) and (b) of the Commission Delegated regulation (EU) 2016/522. Where either of these thresholds is exceeded, the market participant will be deemed to be an emission allowance market participant (EAMP) as defined in Article 3(20) of MAR as of 1 May of the following year (Y+1) and thus subject to the obligations applicable to EAMPs under MAR, including the requirement to disclose inside information concerning emission allowances it, or its parent undertaking or related undertakings, may hold. This approach for MAR purpose will be aligned with the compliance cycle of the EU Emissions Trading System stemming from Directive 2003/87/EC.

In practice, this means that the year of reference for the calculations should be 2016 to determine whether a participant is an EAMP between 3 January and 30 April 2018, and 2017 to determine whether a participant is an EAMP from 1 May 2018 onwards, until the next calculations become applicable on 1 May 2019.

It is reminded that the calculations should take into account all business, including aviation activities or installations, which a participant in the emission allowance market, or its parent undertaking or related undertaking owns or controls or for the operational matters of which that participant, or its parent undertaking or related undertaking is responsible, in whole or in part.

In Questions and Answers on the Market Abuse Regulation (ESMA70-145-111, updated on 14 December 2017) ESMA expressed the regulator’s view on the issue of the period that should be used to calculate whether one of the thresholds has been exceeded and as of when this threshold is deemed to be crossed.

A participant in the emission allowance market should use a calendar year period (one-year period that begins on January 1 and ends on December 31) for the annual calculation of the carbon dioxide equivalent emissions and the rated thermal input (RTI) of 31 December of the same year.

Where either of these thresholds is exceeded, the market participant will be deemed to be an EAMP as of 1 May of the following year.

In practice, this meant that the year of reference for the calculations were:

- 2016 to determine whether a participant was an EAMP between 3 January and 30 April 2018, and

- 2017 to determine whether a participant were an EAMP from 1 May 2018 onwards, until the next calculations applicable on 1 May 2019.

The said ambiguity had been invoked with respect to the overall "emission allowance market participant" (EAMP) concept, as set by the MAR. ESMA in its Consultation Paper of 15 July 2014 clearly and consequently used in this context the word "company", which principally denotes the separate legal entity, and not the group.

The problem, whether the thresholds apply to a single installation, or to a single legal entity and all of its installations, or to an economic group of legal entities under common control and all its installations, has fundamental impacts and is of an utmost practical importance. The ambiguities at issue were reflected also in the course of MAR level 2 consultation process (ESMA's Final Report of 3 February 2015, p. 82).

In the Final Report of 3 February 2015 ESMA, however, unequivocally specified the thresholds apply at a group level and relate to all the installations of an economic group of entities.

In the Final Report of 3 February 2015 the ESMA reasoned its modified position as follows:

"According to the wording of Article 17(2) of MAR, thresholds apply at a group level and relate to all the installations of an economic group of entities. Applying the thresholds at a single entity or even installation level would allow adjusting the activities of respective single entities to be below the reporting threshold and be prone to circumventing MAR requirements. Similarly, it would allow adjusting activities of the group to circumvent the MAR requirements for trading entities related to the entities with physical operations under the EU ETS."

It was also added that such as the EU ETS Directive is of EEA relevance, installations located both in the EU Member States and EEA/EFTA countries and activities carried out in the EU Member States and in EEA/EFTA countries should count towards the above calculations.

The principle that the thresholds apply at the group - and not at the company - level has been finally explicitly stated in Article 5(2) of the Commission Delegated Regulation 2016/522 of 17 December 2015.

The practical consequence of the above determination is that, in the case of two participants to the emission allowances market, respectively A and B, that are part of the same group, if the threshold set in Article 5 of MAR is met by summing up their emissions, each of A and B is an EAMP and is individually subject to the obligation to disclose inside information concerning emission allowances under Article 17(2) of MAR.

Hence, provided that the threshold is met at group level, both A and B are EAMPs, even if individually they are below the threshold of Article 5 of MAR (example given by the ESMA on 29 March 2019, Q11.3, Questions and Answers on the Market Abuse Regulation, ESMA70-145-111).

"Physical operations" as an important element of the diclosure obligation coverage - status of pure trading entities

MAR disclosure obligation in the carbon market can only rest on EAMPs with physical operations. It is clear from the level 1 text that MAR Article 17(2) and Recital 51 explicitly refers to information related to the physical operations of the installations (or activities).

The above observation is not changed by the fact that there may be some trading entities that will be covered by the EAMP's definition and the consequential duties. ESMA acknowledged in its Final Report of 3 February 2015 that "the disclosure obligation can only rest on participants, including such trading entities, with a link to physical operations".

Practical examples of such links are described in greater detail below in the part of this article analysing complexities involved with the EAMP's definition.

In any case it appears that such trading entities, which are owned or controlled or otherwise related to companies with physical operations, as specified in the EU ETS Directive, which are above the thresholds, would also satisfy the definition of an EAMP as a sub-set of the participants in the emission allowance markets.

The above approach will have the practical effect of the existence in the carbon market of the two legally-diversified categories of trading entities - the one with links to entities carrying out the "physical operations", and the second - without such links.

The overall design of new rules on disclosure obligations in the emissions market, laid down in the MAR, leads to the conclusion that from the above two categories of trading entities only the former will be covered with the administrative burden involved.

Thresholds' character - cumulative or alternative?

Another questionable issue was whether the thresholds of 6 million tonnes of carbon dioxide equivalent a year and a rated thermal input of 2,430 MWt were to apply cumulatively or alternatively.

Recital 14 of the Commission Delegated Regulation 2016/522 of 17 December 2015

Furthermore, the annual carbon dioxide equivalent threshold and the rated thermal input threshold should be taken into consideration cumulatively in order for the requirement not to apply. Therefore, exceeding one of the two thresholds should be sufficient for the disclosure obligations under Article 17(2) of Regulation (EU) No 596/2014 to apply.

The conjunction "and" used in Article 17(2) MAR between the two thresholds' components seemed to advocate for a cumulative application, which would mean that the MAR disclosure requirements would only apply if both thresholds were exceeded (this was also the ISDA's stance set out in the above document of 15 October 2014).

However, in the Final Report of 3 February 2015 ESMA unequivocally stated annual CO2 equivalent threshold and the rated thermal input threshold "are to apply cumulatively for the requirement not to apply".

So, in conclusion, exceeding one of the two thresholds is sufficient for the disclosure obligations under Article 17(2) to apply.

As the aforementioned Final Report further elaborates, "Level 1 text in second subparagraph of Article 17(2) states the obligation set in the first subparagraph "... shall not apply to a participant in the emission allowance market where the installations or aviation activities that it owns, controls or is responsible for, in the preceding year have had emissions not exceeding a minimum threshold of carbon dioxide equivalent and, where they carry out combustion activities, have had a rated thermal input not exceeding a minimum threshold" (emphasis added). This subparagraph clearly uses the term "and" for the disclosure requirement NOT to apply. This means that both thresholds must be satisfied (not exceeded) in order for the participant to be exempted from the requirement. In other words, exceeding one of the two thresholds is sufficient for the requirement to apply."

This rule has also been later expressly stipulated in the Recital 14 of the Commission Delegated Regulation 2016/522 of 17 December 2015 (see box).

Content of the inside information disclosure on the carbon market

The distinctive feature of the new framework applying to participants above the said thresholds is they will not have to disclose all information about their emissions, but only the information which is inside information.

Recital 12 of the Commission Delegated Regulation 2016/522 of 17 December 2015

Following the definition of inside information under Article 7(4) of Regulation (EU) No 596/2014, an emissions allowance market participant has to assess on a case by case basis whether the information under consideration meets the criteria of inside information. This implies that an emissions allowance market participant is not expected to publicly disclose all information about its physical operations. The emissions allowance market participant should properly assess the information at stake, taking into account the market circumstances and other external factors that may have a price effect on an emission allowance at the particular point in time when the information arises.

The said information needs to be disclosed on a systematic basis, nevertheless, a case assessment must be conducted.

Such an approach, although burdensome, is clearly expressed in the recital 51 of the MAR, which requires the disclosure requirement to be cost-efficient and devoid of reporting of information that would not be useful to the market.

Hence, ESMA underlines participants above the threshold must have in place the proper systems and procedures and learn how to conduct such assessment.

Given, however, that the scope for the new requirement overlaps partially with respect to some companies (particularly electricity producers) with REMITobligation to publish inside information, the said compliance costs need not, necessarily, to skyrocket.

According to Article 7(1)(c) of MAR, information can only be considered inside information, in particular (among other conditions), "if it were made public, would be likely to have a significant effect on the prices" of 'emission allowances or auctioned products based thereon' while REMIT defines that the relevant effect has to be assessed on "the prices of wholesale energy products".

The said ESMA's Report of 28 September 2015 concludes that it is "clear from the definitions included in MAR and REMIT that not all REMIT inside information fulfils the criteria to be classified as MAR inside information, and also that not all MAR inside information related to the emission allowances or auctioned products based thereon is inside information according to REMIT."

ESMA also points to another difference between the two Regulations, which results from the fact that there are market participants in the wholesale energy markets (covered by REMIT) that are not market participants in the emission allowance markets and vice versa (e.g. industrial combustion activities, such as steel making, are covered by MAR but not by REMIT).

(1) The protection of investors requires effective and timely public disclosure of inside information by issuers and emission allowance market participants. In order to guarantee at Union level equal access of investors to inside information, the inside information should be publicly disclosed free of charge, simultaneously and as fast as possible amongst all categories of investors throughout the Union and it should be communicated to the media which ensure an effective dissemination to the public.

(2) Where emission allowance market participants already fulfil equivalent inside information disclosure requirements in accordance with Regulation (EU) No 1227/2011 of the European Parliament and of the Council, and where they are required to publicly disclose the same information under that Regulation and Regulation (EU) No 596/2014, the obligations under this Regulation should be considered to be fulfilled where the information is disclosed using a platform for the disclosure of inside information for the purposes of Regulation (EU) No 1227/2011, on the condition that the inside information is communicated to the relevant media.

Article 1

Definitions

For the purposes of this Regulation, the following definition shall apply:

'electronic means' are means of electronic equipment for the processing (including digital compression), storage and transmission of data, employing wires, radio, optical technologies, or any other electromagnetic means.

CHAPTER II

TECHNICAL MEANS FOR APPROPRIATE PUBLIC DISCLOSURE OF INSIDE INFORMATION

(b) inside information is communicated, directly or through a third party, to the media which are reasonably relied upon by the public to ensure its effective dissemination. That communication shall be transmitted using electronic means that ensure that the completeness, integrity and confidentiality of the information is maintained during the transmission, and it shall clearly identify:

(i) that the information communicated is inside information;

(ii) the identity of the issuer or emissions allowance market participant: full legal name;

(iii) the identity of the person making the notification: name, surname, position within the issuer or emission allowance market participant;

(iv) the subject matter of the inside information;

(v) the date and time of the communication to the media.

Issuers and emission allowance market participants shall ensure the completeness, integrity and confidentiality by remedying any failure or disruption in the communication of inside information without delay.

2. Emission allowance market participants required to disclose inside information in accordance with Article 4 of Regulation (EU) No 1227/2011 may use the technical means established for the purpose of disclosing inside information under that Regulation for the disclosure of inside information under Article 17(2) of Regulation (EU) No 596/2014 provided the inside information required to be disclosed has substantially the same content and the technical means used for the disclosure ensure that the inside information is communicated to the relevant media.

Article 3

Posting of inside information on a website

The websites referred to in Article 17(1) and (9) of Regulation (EU) No 596/2014 shall comply with the following requirements:

(a) they allow users to access the inside information posted on the website in a non-discriminatory basis and free of charge;

(b) they allow users to locate the inside information in an easily identifiable section of the website;

(c) they ensure the disclosed inside information clearly indicates date and time of disclosure and that the information is organised in chronological order.

Both ESMA's documents: Consultation Paper of 15 July 2014, as well as the Final Report of 28 September 2015, accentuate that, as opposite to REMIT, the use of market participants' own website only cannot be considered proper public disclosure under MAR.

When this approach is used by an EAMP for inside information in scope both under REMIT and MAR, it would have to be complemented with the use of a channel of appropriate disclosure of inside information which meets the characteristics required under MAR.

If an EAMP disseminates the information in the way requested by the MAR technical standards, fulfilling the obligation of communication of the information to the media (as well as the other requirements), it would satisfy the two regimes simultaneously.

Where possible and for emission allowance market participant own benefit, ESMA encourages to use a channel of disclosure satisfying both frameworks REMIT and MAR) at the same time.

The above reasoning is supported by the express wording of the MAR, recital 51 thereof stating: "Where emission allowance market participants already comply with equivalent inside information disclosure requirements, notably pursuant to Regulation (EU) No 1227/2011 [REMIT], the obligation to disclose inside information concerning emission allowances should not lead to the duplication of mandatory disclosures with substantially the same content."

The said ESMA Consultation Paper Draft technical standards on the Market Abuse Regulation of 15 July 2014 (ESMA/2014/809) in that regard reads:

"Only those platforms meeting the requirements foreseen under MAR, and further specified in the technical standards on the technical means for appropriate public disclosure, would be considered as appropriate dissemination channels under MAR. In these cases a single disclosure of inside information would satisfy both regimes, REMIT and MAR, at the same time. A crucial characteristic that a channel of disclosure under MAR must have, is the ability to actively distribute the (inside) information with the goal to reach all the interested parties. As already said, the mere availability of information on a website, implying that investors must actively seek it out, is not sufficient for ensuring effective disclosure of the inside information. Those platforms used under REMIT that are able to disseminate information in such a manner, would clearly be considered appropriate also under the MAR regime."

Recitals to the draft MAR Regulatory Technical Standard attached to the aforementioned Final Report of 28 September 2015 stress that the mere availability of inside information on a website only, even where users are provided with the possibility of being informed about the updated content of the website through subscription to a web feed, is not sufficient for meeting the MAR dissemination requirements (however, note that this passus has not been included in the final text of Recital 1 to the Commission Implementing Regulation 2016/1055).

It was explicitly mentioned in the said Recitals of the ESMA's draft RTS that where emission allowance market participants already comply with inside information disclosure requirements equivalent to REMIT, and are requested to publicly disclose the same information under MAR and Regulation (EU) No 596/2014, the obligations under MAR are fulfilled by means of publication of the information in a platform for the disclosure of inside information used in the context of REMIT, as long as the inside information is communicated to the media “according to the MAR“.

However, the reservation that the communication to the media must be made “according to the MAR” is missing in the final text of the technical standards as stipulated in the Commission Implementing Regulation 2016/1055.

Hence, it may be concluded that an active dissemination of inside information is an indispensable element of the publication system under MAR, but market participants disclosing inside information pursuant to REMIT are not bound by specific means of the dissemination of information to the media specific to the MAR.

Further elements accentuated by ESMA were that the website where inside information is posted by the issuer in fulfilment of Article 17(1) and (9) of the MAR should have the technical features to allow the following:

a. the access to the inside information posted on the website is non-discriminatory and free of charge;

b. inside information should be easy to find: it should be located in an easily identifiable section of the website;

c. disclosed inside information should clearly indicate date and time of the disclosure.

It was also stressed by ESMA that when there is a change in a published inside information, and the change itself constitutes a new inside information, this new information is covered by the inside information's provisions within MAR, and the full process of public disclosure would have to take place (again).

To conclude, under Article 17(1) of MAR, an issuer of financial instruments should post on its website all inside information it is required to disclose and should maintain this information on the website at least for five years (ESMA draws the attention to the fact that EAMPs are not subject to the latter requirement (Final Report of 28 September 2015, p. 49)).

The above provision of MAR needs, however, to be complemented by the the important ESMA's clarification, that the posting of an inside information on a website only, with no communication of the information to the media, is not a sufficient means for ensuring appropriate public disclosure. This point, however, sparked controversies - see MAR publication channels: ESMA vs. EC.

Finally, Article 2(1)(b)(i) of the Commission Implementing Regulation 2016/1055 of 29 June 2016 requires that "inside information is communicated, directly or through a third party, to the media which are reasonably relied upon by the public to ensure its effective dissemination".

Article 2(2) of the said Regulation furthermore stipulates that "Emission allowance market participants required to disclose inside information in accordance with Article 4 of Regulation (EU) No 1227/2011 may use the technical means established for the purpose of disclosing inside information under that Regulation for the disclosure of inside information under Article 17(2) of Regulation (EU) No 596/2014 provided the inside information required to be disclosed has substantially the same content and the technical means used for the disclosure ensure that the inside information is communicated to the relevant media."

As ACER argued, adding this field "is the first step for websites and platforms, to be able to disclose inside information according to the Market Abuse Regulation standards avoiding double publication of the same inside information".

In the subsequent document ACER, however, has not pursued this thread and the final REMIT Common Schema for the Disclosure of Inside Information does not contain this position.

Recital 11 of the Commission Delegated Regulation 2016/522 of 17 December 2015

Emission allowance market participants are a specific sub-set of the participants in the emission allowance market. Among the participants in the emission allowance market, those above certain minimum thresholds should qualify as emissions allowance market participants, and the requirement of public disclosure of inside information should apply only to them. Therefore, those minimum thresholds should be clearly established.

New obligations for the disclosure of inside information apply to "emission allowance market participant" being defined in Article 3(20) of MAR as any person who enters into transactions, including the placing of orders to trade, in emission allowances, auctioned products based thereon, or derivatives thereof, provided it does not benefit from an exemption based on the above thresholds.

ESMA observed "emission allowance market participants" in the MAR meaning are a specific sub-set of all participants in the emission allowance market.

Distinctive features of this narrower category are the fact of being above the threshold and the consequent requirement for public disclosure of inside information.

Who can potentially consider itself in the scope?

On the basis of Article 3(e), (f) and (o)) of the EU ETS Directive (which contains legal definitions of "operators", "installations" and "aircraft operators") "emission allowance market participants in the MAR meaning are obviously companies producing CO2, the so-called emitters of emissions, but one shouldn't neglect the fact that the Regulation (EU) No 1031/2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances includes investment firms and credit institutions among the persons eligible to participate in the bids of emission allowances organised by the auction platform (primary market auction).

On this basis ESMA expressly indicates, financial intermediaries can also be the "emission allowance market participants".

This specific MAR category also includes traders and any other persons entering into secondary transactions in emission allowances and derivatives thereof (secondary market trading).

The European financial regulator has also made a specific remark on dedicated trading entities of emitters of emission (such as energy producing companies and large industrials), which, in the ESMA opinion, could qualify as professional traders (in the conventional meaning of the term).

Consequently, when such dedicated trading entities are owned or controlled or otherwise related to companies with physical operations covered by the EU ETS, which do not qualify for the exemption (i.e. are above the threshold), they would also satisfy the definition of an "emission allowance market participant" and, consequently be covered with MAR inside information disclosure requirements.

The influence of the thresholds on MAR requirements relating to insiders' lists and managers transactions disclosure duties

Referring once more to the axis of this article, i.e. the significance thresholds, it is necessary, however, to point to another crucial implication of the legislative technique used.

It needs to be noted, the said thresholds have been incorporated into the very definition of the "emission allowance market participant" (Article 3(20) of the MAR).

This entails the conclusion, persons below the threshold are not covered and do not qualify as "emission allowance market participants" in the MAR meaning.

Given the entire array of other MAR requirements, being insiders lists and managers' transactions disclosure duties, apply - when it comes to emissions market - to "emission allowance market participants" in the meaning strictly defined in MAR (respectively: Article 18(8) and Article 19(1)(b) of the MAR), it follows, the participants in the said market being below the threshold are free not only from inside information disclosure duties, but also from MAR requirements relating to the said insiders' lists and managers transactions disclosure duties.

It needs, however, to be reserved, this remark relates only to the carbon market and is without prejudice to issuers' obligations.

Moreover, ESMA clearly underlines persons exempted from the requirement of public disclosure of inside information, remain subject to other market abuse prohibitions, in particular the prohibition of insider dealing in relation to any other inside information they have access to.

ESMA referred to the said issue once more in March 2019 edition of its Q&As on MAR, where the Authority included some closer remarks on:

- disclosure of inside information regarding installations of other undertakings of the group of the EAMP, and

- meaning of parent and related undertakings.

The ESMA’s clarifications in this regard are quoted in the boxes below.

Questions and Answers on the Market Abuse Regulation (MAR), ESMA70-145-111

Disclosure of inside information concerning emission allowances, referring to installations of other undertakings of the group of the EAMP

Updated: 29 March 2019

Q11.3 Are EAMPs under the obligation to disclose inside information concerning emission allowances where such inside information regards installations of other undertakings of the group of the EAMP?

A11.3 Yes, in the circumstances explained below.

Article 3(1)(20) of MAR sets forth two cumulative requirements to be an EAMP: (i) being a person that enters “into transactions, including the placing of orders to trade, in emission allowances, auctioned products based thereon, or derivatives thereof”, and (ii) exceeding a threshold of carbon dioxide equivalent (or having had a rated thermal input exceeding a minimum threshold, where the participant carries out combustion activities).

As regards the first condition, ESMA’s technical advice on possible delegated acts concerning the Market Abuse Regulation (ESMA/2015/224) provides indications on several examples of participants to the emission allowances market. ESMA considers that market participants that enter into transactions or place orders to trade in emission allowances either directly and indirectly fall within the definition of Article 3(1)(20) of MAR. The latter is the case, for instance, for polluting companies that trade emission allowances through trading companies within the same group.

As regards the second condition, the minimum thresholds are provided for by Article 5 of the Commission Delegated Regulation (EU) 2016/522 and consist of carbon dioxide equivalent of 6 million tonnes a year or 2,430 MW of rated thermal input. The threshold applies “at group level and relate to all business, including aviation activities or installations, which the participant in the emission allowance market concerned, or its parent undertaking or related undertaking owns or controls or for the operational matters of which the participant concerned, or its parent undertaking or related undertaking is responsible, in whole or in part.”.

Hence, in the case of two participants to the emission allowances market, respectively A and B, that are part of the same group, if the threshold set in Article 5 is met by summing up their emissions, each of A and B is an EAMP and is individually subject to the obligation to disclose inside information concerning emission allowances under Article 17(2) of MAR. In other words, provided that the threshold is met at group level, both A and B are EAMPs, even if individually they are below the threshold of Article 5.

An EAMP has to disclose inside information concerning emission allowances where the installation of an undertaking that is a parent company of the EAMP or a related company (see A.5.6 above) has an impact on the EAMP’s demand of emission allowances.

For instance, an EAMP operating a fossil fuel power plant would be directly impacted in its demand of emission allowances by the establishment of a significant wind farm by a related undertaking. Namely, relevant production of renewable energies could allow the EAMP to keep any spare allowances to cover its future needs or to sell them to another company that lacks allowances. In light of this, the EAMP would have to disclose inside information concerning emission allowances regarding the establishment of a relevant plant producing renewable energy. The EAMP would also be responsible for any delay of disclosure of the inside information concerning emission allowances pursuant to Article 17(4) of MAR.

Should there be, as in the case of A and B above, more than one EAMP in a group, the obligation to disclose the inside information concerning emission allowances falls on the EAMP whose demand of emission allowances is impacted by the parent or related company’s business (that would also be responsible for any delay in the disclosure). Where both A and B are impacted, each of them would be obliged to disclose such information and the disclosure obligation is fulfilled once the inside information concerning emission allowances is published.

Questions and Answers On the Market Abuse Regulation (MAR), ESMA70-145-111

Meaning of ‘parent’ and ‘related undertaking’ in Article 17(2) of MAR

Updated: 29 March 2019

Q11.2 What is the meaning of ‘parent’ and ‘related undertaking’ in Article 17(2) of MAR?

A11.2 Article 17(2) of MAR provides that an emission allowance market participant shall ”disclose inside information concerning emission allowances which it holds in respect of its business [...] or installations [...] which the participant concerned, or its parent undertaking or related undertaking, owns or controls or for the operational matters of which the participant, or its parent undertaking or related undertaking, is responsible, in whole or in part”.

For the purposes of defining the parent company, Article 30(2) of MAR refers to Directive 2013/34/EU. Article 2 points (9) and (10) of Directive 2013/34/EU define parent undertaking as “an undertaking which controls one or more subsidiary undertakings”, and a subsidiary undertaking as “an undertaking controlled by a parent undertaking, including any subsidiary undertaking of an ultimate parent undertaking”. Considering also that the definition of a group in Directive 2013/34/EU comprises the parent undertaking and all its subsidiary undertakings, ESMA considers that also ultimate parent undertakings are relevant for the purposes of Article 17(2) of MAR.

With reference to the related undertakings, ESMA’s reading is that:

(i) in line with Article 4 of Regulation 1227/2011/EU (REMIT), related undertakings are “either a subsidiary or other undertaking in which a participation is held, or an undertaking linked with another undertaking by a relationship within the meaning of” current Article 22(7) of Directive 2013/34/EU, and

(ii) for the purposes of Article 17(2) of MAR the relevant related undertakings are those of the parent undertaking of the EAMP.

Officially Appointed Mechanism (OAM)

Article 17(1) of the MAR requires issuers of a financial instrument to publicly disclose as soon as possible inside information in a manner which enables fast access and complete, correct and timely assessment of the information by the public. These criteria are replicated from the Directive 2003/124/EC implementing MAD.

In addition to the disclosed inside information being posted on the issuer's website, where applicable, information should be also made available in the officially appointed mechanism (OAM) under the Transparency Directive 2004/109/EC.

It is to be noted, inside information relating only to an emission allowance product is not required by the MAR to be maintained in the OAM (Final Report of 28 September 2015, p. 42, 44).

Events associated with price effects on the carbon market

What kind of events should, practically, be disclosed in the carbon market, then?

The aforementioned analysis of 22 May 2014 used data on the variation of the EUA spot price over time, and tested whether the various events had a statistically significant impact on EUA prices.

The two tests were carried out.

The first statistical test was a Chow break test which the consultant assessed as a well-established way of assessing a change in the evolution of a time series. This compared the price movement at the time of the event with the scale of daily price movements in the previous three months before the event.

The second test (strictly a set of tests) compared price movements on the day of the event (or on the day of the event and one or two days subsequently). Deviation from the price movements in the six weeks both before and after the event were assessed (but excluding the period around the event itself).

The results were displayed in the form of the table as below.

Table: Statistical significance of the impact of different events on EUA prices

The aforementioned analysis of 22 May 2014 points in that regard to the following circumstances (s. 19, 20):

"[...] there is not a sharp divide between events associated with price effects which are detectable in statistically significant terms, and those which are not — e.g. an event estimated to have a volume effect of 5.8 million tonnes has a detectable effect, but several larger ones do not. It follows that one interpretation — based on the stricter interpretation of statistical significance (i.e. at least a five per cent confidence level) — would be that the transition to information disclosure having a statistically significant price effect could be as high 23 million tonnes (or more). This is about 1.2 per cent of the total volume of the emissions market.The smallest volume impact to register as being associated with a statistically significant price effect in the above analysis is 3.4 million tonnes. We have adopted 3 million tonnes as a policy option. Alternatively the smallest volume impact to register as being associated with a statistically significant price effect on both measures is 5.8 million tonnes. We have adopted 6 million tonnes as a further policy option on this basis."

If the methodologies adopted in the said report are correct, it follows, the smallest volume registered having a statistically significant price effect in the carbon market was 3.4 million tonnes of CO2 (as of May 2014, being the date of the report).

There is a question whether the carbon market have evolved since then to the extent capable to influence the above assumptions

Language for the carbon public information disclosure under MAR

When it comes to the language for the appropriate carbon public information disclosure under MAR, ESMA initially considered it should be a language accepted by the relevant competent authority for notification purposes, plus a "language customary in the sphere of international finance", or alternatively only a "language customary in the sphere of international finance", so, decoding these euphemisms, effectively, English.

Although in the Final Report Draft technical standards on the Market Abuse Regulation of 28 September 2015 ESMA broadly maintained the same approach as the one presented in the Consultation Paper of 15 July 2014, this does not relate to the language to be used, since the respective provision has been deleted (because considered out of the empowerment).

Complementary duties

To complement this short description of the inside information disclosure duties placed by the MAR on emitters it is necessary to add, Article 17(8) of the MAR requires issuers or emission allowance market participants to make an effective and complete public disclosure of the inside information disclosed to a third party not owing duties of confidentiality.

Such public disclosure should be made simultaneously with the transmission to the third party in the case of an intentional disclosure, and promptly thereafter in the case of non-intentional disclosure.

In this respect, ESMA considers that the way and manner in which the inside information transmitted to a third party should be made public, should not be different from any other disclosure of inside information made according to the ordinary procedure (as set out above).

It indicates, moreover, it would be inefficient and confusing for issuers and emission allowance market participants to adopt a different approach for public disclosure of information transmitted to a third party.

MAR/Auctioniong Regulation interrelations

One more thing needs to be also recalled for clarity reasons, i.e. the interrelation between the above MAR provisions and the aforementioned Regulation (EU) No 1031/2010, which provides for two parallel market abuse regimes applicable to the auctions of emission allowances.

Recital 37 of the MAR explains this accentuating that as a consequence of the classification of emission allowances as financial instru­ments, MAR constitutes a single rule book of market abuse measures applicable to the entirety of the primary and secondary markets in emission allowances. MAR Regulation should also apply to behaviour or transactions, including bids, relating to the auctioning on an auction platform authorised as a regulated market of emission allowances or other auctioned products based thereon, including when auctioned products are not financial instruments, pursuant to Regulation (EU) No 1031/2010.

MAR entry into force

MAR replaces the existing Market Abuse Directive (Directive 2003/6/EC) and will become applicable 3 July 2016, except for provisions, which explicitly depend on MiFID II (for which the date of MiFID II entry into force applies).

Note also:

- Article 39(4) second subparagraph of the MAR, which states: "Where reference in the provisions of this Regulation is made to OTFs, SME growth markets, emission allowances or auctioned products based thereon, those provisions shall not apply to OTFs, SME growth markets, emission allowances or auctioned products based thereon until 3 January 2017", and

"The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II."

Given the above circumstances, it appears that the new MAR framework for carbon publications will need to be operational as from 3 January 2018.

Final remarks

To conclude the thread for the MAR carbon thresholds, the reflection comes to mind that for the completeness of the carbon market's design the disclosure of inside information possessed by the most significant emitters is inevitably necessary.

Moreover, without such legislation emissions market couldn't be considered entirely fair.

However, at the moment, it is acknowledged that the market impact of such disclosures is, to some extent, limited, and carbon prices are much more driven by the macroeconomic data and policy developments.

MAD/MAR application to the carbon market - regulatory chronicle

29 March 2019

The ESMA has updated its Q&A on MAR with respect to:

- Meaning of parent and related undertakings; and

- Disclosure of inside information concerning emission allowances, referring to installations of other undertakings of the group of the EAMP.